Goldman's Take On TARGET2 And How The Bundesbank Will Suffer Massive Losses If The Eurozone Fails

Two weeks ago in "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" we suggested that according to recent fund flow data, "the Bundesbank wants slowly and quietly out." Out of what? Why the European intertwined monetary mechanism of course, where surplus nations' central bank continue to fund deficit countries' accounts via an ECB intermediary. We speculated that according to the recent ECB proposal, the primary beneficiary of direct ECB intermediation in fund flows, as Draghi has been pushing for past month, would be to disentangle solvent entities like the Bundesbank, allowing it to prepare for D-Day without the shackles of trillions of Euros in deficit capital by virtually all of its counterparties. Today it is the turn of Goldman's Dirk Schumacher to pick up where our argument left off, and to suggest that it is indeed a possibility that the Buba would suffer irreparable consequences as a result of Eurozone implosion, and thus, implicitly, it is Jens Wiedmann's role to accelerate the plan of extracting the Buba from the continent's rapidly unwinding monetary (and fiscal) system.

From Goldman:

"central banks in the core countries face one specific risk that can be traced back to the TARGET2 imbalances, and this refers to the possibility that a country might decide to leave the Euro area. In such a scenario, the net claims the remaining central banks have acquired vis-à-vis that country reflect a genuine risk that would not exist without these imbalances. This could in the extreme case of a total break-up of the Euro area, and assuming that the peripheral central banks could not repay their liabilities, mean that the losses would materialise on the Bundesbank’s balance sheet."

Adn the conclusion:

It is only if one or several countries were to decide to leave the Euro area that the imbalances would lead to potentially significant losses beyond the risk already reflected in the current generous liquidity provision through the ECB.

Needless to say, the possibility that a European country can leave at will, as the European Nash Equilibrium finally fails, is something the Bundesbank not only knows all too well, but is actively preparing for: here is what we said on December 6: "we may be experiencing the attempt by the last safe European central bank - Buba - to disintermediate itself from the slow motion trainwreck that is the European shadow banking (first) and then traditional banking collapse (second and last). Because as Lehman showed, it took the lock up of money markets - that stalwart of shadow liabilities - to push the system over the edge, and require a multi-trillion bailout from the true lender of last resort. The same thing is happening now in Europe. And the Bundesbank increasingly appears to want none of it."

After all, Germany has been sending the periphery enough messages to where only the most vacuous is not preparing to exit. The question is just how self-serving is Germany being, and whether once Buba is fully disintermediated, Germany will finally push the domino, letting the chips fall where they may?

In other words forget about printing: Europe will be lucky if it maintains the Bundesbank within the existing framework of the ECB. Which means the only European bailout rescue recourse continues to come from just one palce - that of the subbasement deep under the Marriner Eccles in Washington, DC.

From Goldman Sachs' Dirk Schumacher

TARGET2 balances: A shock absorber for the Euro area, not an amplifier

The so-called TARGET2 balances between Euro area national central banks have, by acting as a safety valve, prevented a disorderly correction of the imbalances in the region. By moderating the adjustment, they have bought policymakers time to address the underlying causes of these imbalances. Thus, the rising net claims of ‘core’ vis-à-vis ‘peripheral’ central banks in the Euro area should be seen as symptoms—rather than a cause— of the crisis.

TARGET2 imbalances reflect peripheral countries’ continuing need for external financing and are therefore complementary to the persistent large current account deficits seen in the periphery. However, these imbalances do not per se represent an additional risk for national central banks beyond that already stemming from the ECB’s very generous liquidity provision. Only if one or several countries were to decide to leave the Euro area would these imbalances reflect a genuine new risk for those central banks that have acquired net claims vis-à-vis other central banks.

Another ECB mandate: Smooth operations of payment systems

The ECB’s main role in the eyes of the general public is to set the interest rate level at which banks can borrow reserves at the ECB. Determining the appropriate stance of monetary policy is indeed the main task of the ECB in order to fulfil its “primary objective”, which the EU treaty defines as “to maintain price stability”.

But the EU treaty also obliges the ECB “to promote the smooth operation of payment systems”, which implies “facilitating the circulation of money in a country or currency area”.1 The ECB plays a crucial role in the Euro-zone’s payments system through the so-called TARGET2 system2, which allows banks to settle payments between each other. Around 866 credit institutions currently participate directly in TARGET2 and some 3,585 participate indirectly through subsidiaries. The daily average turnover of the system in 2010 was 343,380 payments, representing a total average value of €2.3trn.

Strong increase in imbalances One characteristic of the ECB’s TARGET system is that payments from one bank to another bank in a different Euro-zone country are processed through the respective national central banks. If, for example, money istransferred from country A to country B, this payment will involve the central bank of country A as well as the central bank of country B.

An important feature of the TARGET2 system is that claims among national central banks resulting from crossborder payments are not necessarily balanced. The payment from country A to country B therefore leaves, all else equal, central bank B with a claim vis-à-vis the central bank of country A. If the payments predominantly flow in one direction—always from A to B, without any offsetting flows—the receiving central banks’ claims will continue to rise, creating ever-growing imbalances in the TARGET2 system.

Chart 2 shows the imbalances that exist among Eurozone central banks, as reflected in the net claims of some central banks against others. As can be seen, these imbalances have increased dramatically since the outbreak of the crisis: the Bundesbank—and to some extent the Banque de France and the Nederlandsche Bank—have acquired significant net claims against the central banks in the periphery.

But while there are now substantial imbalances in the TARGET2 system at the level of central banks’ accounts, it is less obvious how these imbalances should be interpreted.

The macro view of TARGET2 imbalances

Before we explain in more detail the mechanics of the TARGET2 system, and how cross-border flows between core and periphery are processed in the system, it is worth looking at the macroeconomic story underlying the imbalances. This should make it easier to follow the economics behind the accounting that we present below. Countries in the periphery ran partly very sizable current account deficits, which were financed through borrowing from core countries, mainly through the banking system. These loans were privately funded and, although processed through the TARGET2 system, did not lead to imbalances.

As banks in the core economies were no longer willing to extend credit to peripheral banks, central banks in the periphery stepped in and refinanced peripheral banks. Consequently they financed the current account deficits of peripheral countries. It is this replacement of privately lent money through central bank funding that led to the rise in net claims of central banks in the core against peripheral central banks.

The mechanics of TARGET2

We now explain the mechanics of TARGET2, starting with a simple example showing the money flow of a payment between banks within a single country. If a client of bank A transfers money from her account to another account at bank B to pay a bill, her account at bank A is debited with that amount in the first step of that transaction. The settlement between bank A and bank B then takes place through the exchange of central bank money. For this, the account of bank A at the central bank is debited with the respective Euro amount, while the account of bank B is credited with that same amount.

Note, that the balance sheet of the central bank has not changed in this transaction, as it simply transferred central bank reserves from one account to another, without any change to the overall liabilities or claims to the commercial bank sector.

We now look at the same transaction but assume that bank A and bank B are located in different countries, with bank A (‘bank periphery’ henceforth) domiciled in the Euro-zone periphery and bank B (‘bank core’) sitting in the core Euro-zone.

Table 1 shows the stylised balance sheets of all four institutions involved in the transaction. We assume that bank periphery and bank core have made loans to corporates in their respective countries worth €100, and that these loans are financed through deposits and the issuance of bank debt; we abstract from any equity capital. Each bank also has deposits at the central bank and liabilities of that same amount. The central banks in turn have claims against the commercial banks andsimilar liabilities.

Cross-border transaction

We now assume that a corporate in the periphery wants to buy a machine worth €10 from a producer based in the core. For this, the corporate borrows €10 from bank periphery and asks the bank to transfer the €10 to the account of the producer of the machine at bank core. Again the settlement of the payment takes place via the central bank. But, given that the banks are located in two different countries, the central banks of periphery and core are involved in this transaction.

At the first stage of the transaction, the claims of central bank periphery against bank periphery will increase by €10. The liabilities of central bank periphery will increase by the same amount as the money is passed on to central bank core; implicitly the claims of central bank core against central bank periphery increase by €10. Furthermore, central bank core credits the account of the producer of the machine with €10.

However, the question remains of how bank periphery has funded the loan to the corporate. One possibility is that bank periphery issues debt worth €10 in order to fund this loan. Bank core would be, in our little model economy, the natural buyer. As its deposits have now increased by €10, it may want to invest somewhere. Thus, bank core buys the bond issued by bank periphery by wiring €10 back through the central bank system. As a consequence of the reversal of the payment, the claims of central bank core against central bank periphery are reduced to zero again, as are the liabilities of central bank periphery against central bank core.

Table 2 summarises the balance sheets of all four institutes involved in the settlement of the payment. We would stress a couple of noteworthy points here:

When periphery borrows from core, a current account deficit opens up. The periphery has bought the machine from the producer in the core by borrowing €10 from bank periphery, which has been funded ultimately through the savings of the machine producer (the deposits in the machine producer’s bank account have increased by €10). The macroeconomic equivalent of this is that the periphery records a current account deficit against the core.

Credit risk of core extends through the banking sector. Although the machine producer in the core is the ultimate bearer of the underlying credit risk, that risk would only materialise if bank periphery and bank core were unable to make their obligations, i.e., bank periphery was unable to repay the bond issued and bank core unable to guarantee the deposit of the machine producer. Note that we have abstracted in our stylised model from any equity on the side of banks that could be used to absorb any losses.

Central banks bear no risk in this transaction. The trans-border payments have not led to any change in the exposure of central banks vis-à-vis the private banking sector, as the claims against the banking sector in the periphery and core have not changed on the back of the transaction. Central banks have simply facilitated the flow of money, and thus the lending from core to periphery.

No TARGET2 imbalances. Neither central bank ultimately saw a change in its liability or claim against the other central bank once all payments had been made, and there are consequently no net claims— TARGET2 imbalances—of one central bank against the other, despite a current account deficit of periphery against core.

Core stops lending to bank

We now assume that the funding situation of bank periphery deteriorates and that bank periphery finds it increasingly difficult to finance the loans on its balance sheet. These difficulties could stem from the fact that bank core is unwilling to roll the bond issued from bank periphery, for example.

The sequencing of the flows starts with bank periphery shifting €50 to its account at central bank periphery as bank core is unwilling to re-finance the debt that is maturing, and is demanding that its money be wired back.

Central bank periphery then transfers the money to central bank core, which results in the liabilities of central bank periphery against central bank core increasing by €50. Finally, central bank core credits the account of bank periphery with €50 and bank core credits the account of the depositors from the periphery—who have now opened an account with bank core in order to shift their deposits from periphery to core—with €50.

The crucial question is how bank periphery is financing its loans, as the asset side of bank periphery is now longer than the liability side (€110 in loans plus €10 in central bank reserves against €60 in deposits/debt). Assuming that bank periphery is not able to issue any new debt or increase its deposits, there are only three possible scenarios at this stage. First, the bank could try to reduce its asset side as well by pulling credit lines or selling off loans. If this is not possible, bank periphery could try to refinance its loan book at central bank periphery. If this is not possible either, the only option left for bank periphery is a default. The scenario depicted in Table 3 assumes that bank periphery refinances its loans after the withdrawal of deposits by pledging its loan as collateral to central bank periphery.

Another possible scenario leading to funding strains for bank periphery is if deposits are withdrawn and transferred to bank core as depositors question the solvency of bank periphery. The underlying flows in this ‘capital flight’ scenario are identical to what is displayed in Table 3, and central bank core again acquires in that scenario a claim on central bank periphery, i.e., aTARGET2 imbalance opens up.

No change in the current account deficit, but the deficit is funded differently now

There are similarities—but also meaningfully differences—between the balance sheets as displayed in Tables 2 and 3. For one, the current account deficit of the periphery vis-à-vis the core is the same. What is different, though, is how the loans on the balance sheets at bank periphery are funded: central bank core has replaced bank core and/or private depositors from the periphery who have shifted their money to the core. It is this replacement that has led to the rise of TARGET2 imbalances. Because there is no money flowing back from the core private sector to the periphery, central bank core has now a net claim against central bank periphery of €50. But these net claims are not a result of higher lending activity in the periphery or of a bigger current account deficit.

Note in that respect that there is no limit to the claims/liabilities between central banks created through the TARGET2 system. The only real binding limit is the amount of eligible collateral that peripheral commercial banks can pledge to their national central banks.

ECB funding of peripheral banks has increased sharply, while German banks show little interest

The previous section showed that TARGET2 imbalances can arise simply by a tightening of funding conditions for banks that led to a stronger reliance on the central bank as a funding source. We now look at the extent to which the scenario described in Table 3 is consistent with the rise in TARGET2 imbalances. For this, we first look at the funding of banks in peripheral and core countries through the ECB (Chart 2). The dependence on the ECB as a funding source has increased significantly over the last two years—particularly in the case of Greece, Ireland, and Portugal—and the rising share of banking system assets are re-financed at the ECB.

Note that these numbers under-represent the actual reliance on the ECB as they do not include lending under the so-called Emergency Liquidity Assistance (ELA), which in the case of Ireland, for example, reflects around 15% of outstanding loans of Irish credit institutions.

Chart 3 shows another development that is consistent with the shift of funding from peripheral countries to the core, and in particular Germany. While German banks represented around of 50% of the ECB’s refinancing operations before the crisis, this share has declined to almost zero. The decline in the share of German banks at the ECB’s refinancing operations also reflects the tendency of German banks to play an intermediary role, which they ceased doing after the crisis led to a mutual loss of confidence among banks. At the same time, deposits as a share of loans to the private sector have continued to increase over the past couple of years in Germany (see Chart 4).

As far as the drying up of private funding sources for peripheral banks is concerned, there is evidence that German banks have significantly reduced their lending to peripheral banks. Given that it is the Bundesbank that has seen its net claims rising strongly against peripheral central banks, the reduced funding of German banks is simply the counterpart to the TARGET2 imbalances. Finally, we can also observe that deposits in Greece have declined sharply over the last two years, although deposits in the other peripheral countries have remained broadly stable so far (Chart 6).

TARGET2 smoothes the adjustment in current account deficits, but does not prevent it

Some commentators have argued that the existence of the TARGET2 imbalances would prevent an adjustment of the current account deficit. As Chart 7 shows, this is not necessarily the case as the current account deficits in the periphery are declining. Moreover, private-sector deleveraging also remains strong (Chart 8) and bank lending has generally declined (Chart 9).

A genuine TARGET2 risk only in the event of a Euro area break-up

By increasing its liquidity provision to Euro-zone banks, the European System of Central Banks (ECB plus national central banks) also inevitably increased the credit risk it faces, despite the various haircuts the ESCB applies to the collateral that is pledged. As the ECB has increased its funding to peripheral banks in particular, the risks the ESCB faces is also more concentrated in that region.

The losses the ESCB might face, however, are distributed among the national central banks regardless of where they materialise. This is the case whether there are significant TARGET2 imbalances or not. The rise in TARGET2 imbalances has increased the risk for core central banks only to the extent that without these imbalances the liquidity provision of peripheral banks would have been smaller. But it is not clear to what extent the liquidity provision to peripheral banks would have been any smaller without the TARGET2 imbalances. After all, it is the repo operations (whether full allotment or not) and the collateral regime that decide on the size of the liquidity provision.

Put differently, it was the decision to replace private funding through central bank liquidity that increased the risk the ESCB faces and not the fact that TARGET2 facilitated transfers from peripheral countries to the core. As long as peripheral central banks are able to replace private funding—and the limiting factor here is the amount of collateral that can be pledged—there is no additional risk due to TARGET2 imbalances.

However, central banks in the core countries face one specific risk that can be traced back to the TARGET2 imbalances, and this refers to the possibility that a country might decide to leave the Euro area. In such a scenario, the net claims the remaining central banks have acquired vis-à-vis that country reflect a genuine risk that would not exist without these imbalances. This could in the extreme case of a total break-up of the Euro area, and assuming that the peripheral central banks could not repay their liabilities, mean that the losses would materialise on the Bundesbank’s balance sheet.

Overall, barring any collapse of the Euro-zone, TARGET2 imbalances do not reflect an additional risk for core central banks. It is only if one or several countries were to decide to leave the Euro area that the imbalances would lead to potentially significant losses beyond the risk already reflected in the current generous liquidity provision through the ECB.

As Lehman showed, it took the lock up of money markets to push the system over the edge, and require a multi-trillion bailout from the true lender of last resort. The same thing is happening now in Europe. And the Bundesbank increasingly appears to want none of it."

Either way don't put an accurate phone number, you will be pestered to death by others.

I know several people from Sargent TX Dr. Paul delivered for whatever could be afforded by the family rather than take Medicare. Now Dr. Paul asks the people to send what they can for the sickest patient.

This is the Mexican stand off. just watch. Who out of these countries haven't managed to do anything in 2 millennium except attempt to kill each other, this is the story arc. It won't last very long, but the effects are going to be spectacular.

That's what they said before the housing bubble bust, then the bust happened and you got your instant gratification of fulfilled prophecy with the carnage. The problem is so few people can actually analyze the natural progression of events and likely outcomes, you not being one of them who can.

It works the same way in China. Their epic housing bubble is bursting right now and there's nothing they can do to stop it. We already know how that will turn out, just look at the western world for an example.

The Eurozone, part of the one world government program, is a complete and total failure just as their global carbon tax was. Get over it.

Culture is much more sophisticated than what you predict. Europe has bonded as a continent politically. Economically they are reliant on each other. The main problem in Europe is the delusional technocrats that believe austerity is going to improve the bond market.

From 2005 - 2008 I watched this mess, mainly focusing on the housing component, and could not believe the things I saw. The stock market rose to its highs in 2007, as housing seemed headed for a major disaster. The financial system seemed to be a boxer that could take any punch thrown at it. Then came Sept. 14, 2008. That punch didn't knock the boxer out, not right away. But reality finally seemed to set in.

The Fed then jumped in and bailed out every sociopathic criminal organization it could. Now almost three years later I sit here wondering how it is still going. The European mess just seems to get bigger. The only thing holding up the U.S. economy is massive government deficit spending and The Fed operating in the shadows. Just like 2008 it seems that something big has to happen soon. In the meantime, plan and prepare. I don't know what else to do.

Like the Chinese they'll probably want a gold backed currency; the question is how they could possibly achieve that when the Fed has most of their physical gold in theory, if it hasn't been rehypothecated? In the case of the euro and the dollar, lets call it "ED", the "ED" is “backed” primarily by government bonds, which are promises to pay EDs. So, the ED is a promise backed by a promise to pay an identical promise. So what is the substance of this promise???? If the the germane government treasuries will not give you anything tangible for your ED, then the "EDA is a promise to pay nothing.

Despite all the hyperbole, in the end, the winner will be whoever holds the physical gold and silver in my opinion. Thats the money I would want, rather than infitley debt laden fiat currencies backed only by ever increasing and increasingly not repayable debt. The rush to take possession of the last real money (the only true store of wealth over time) will become quite evident as the remaining solvent nations rush to become the currency leaders, backing their currencies with the only univerally trusted money through out the ages of failed fiat currencies.

It seems to me the Euro could survive given their massive gold holdings. Unlike the US, Euro gold is marked to market, so they could convert savings accounts to being gold backed, print like crazy, stave off disaster, savers are protected by gold, so their new gold backed accounts should rise with inflation.

If savers money is backed by gold, who gives a shit? Wouldn't inflation become essentially meaningless? If it costs $1 or $100 for a loaf of bread, as long as your savings are backed by gold, what difference does it make if you use one imaginary number or a different one?

Why? The people that dont have savings probably have debt owed to banks. Under a massive inflationary period, all their debt essentially goes away. Pay 1c on the dollar or something. Savers win, debtors win, banks get totally fucked. Or am I missing something? Where is the downside?

Suppose Italy offered a Euro (or dollar) denominated 30 year bond which carried with it an option to exchange the principal of the bond for gold at maturity, at say, 3000 Euros to the ounce secured by physical deposit of the gold in some country outside of Italy (Canada or Germany perhaps). Such a bond with its inflation protection might attact a lower interest rate than Italy is able to get at the moment and Italy's problem revolves a lot around keeping interest rates down.

sort of supports Kyle Bass thesis that Germany will wait for the collpase, then recapitalize its bank. I highly doubt US banks will get another bailout. If you hold BAC, or MS, you may be out of luck.

My thesis is Germany will exit. EZ collapses. Germany will bailout its banks with new Deutsche Marks. With a high Deutsche Mark, the new BundesBank will print, and her flushed, recapitalized banks will buy out prime European assets. She gets Europe, and can maintain her export base.

It will be interesting to watch. But gold and oil may stay bid silver and other indust commodities sell off. USD will be bid too on Asia outflows. Stocks volatility to the major liquidation trade, then the print jobs...maybe 6mths into 2012.

near term, if EZ collapses, commodity collateral trade will collapse, and commodity prices will collapse. Medium run, if EZ collapses, US will enter another deep recession. So it will be forced to stimulate. But that will push debt:tax revenue over 120%. So US will be headed for downgrades, and the USD as a reserve currency is doomed.

After the flight from USD is manifest, and its reserve status in jeopardy, US will either call for a debt jubilee, and risk war with China. Or wage war with a big player (Iran/Pakistan) to increase GDP.

But when the USD falters as reserve currency, commodities will likely be a temporary store of value, and unit of exchange. It's still unclear if USD will be dropped as the reserve currency, since the US will remain the primary military power for a long while.

Military planners have planned a US vs China conflict by 2020 (When China economy becomes bigger than the US)

The US could defeat China. It would very likely win any war with middle powers to increase GDP.

But there will be a period where the USD reign will be questioned. So I see a comeback in commodities, if it collapses after a EZ implosion.

Isn't using war to increase GDP a bit like the broken window fallacy? How does using precious resources to build armaments which are then destroyed boost GDP? I can see how people are employed, and thus have money to spend, but the wages the gov is paying is printed money anyways. I guess if they just gave everyone $100K, it would be spent in country and contribute to inflation, whereas blowing shit up in another country does not so much.

Still seems like madness to me. We could colanise mars, which would export inflation, kill less people, and be way cooler, for seeminly the smae economic boost.

I am betting on China meltdown within the first 6mths of 2012. So many signs pointing that way FX outflows, property implosion Wenzhou contagion (goggle it). When banking crisis in China hits the wires, stocks will be sold into oblivion.

Also, a cute Chinese girl that works at the local supermarket near me said this. "China really bad...too many properties..."

In addition this is the smartest move Germany can make. Why would Germany print now knowing the collapse of Greece, Italy, Spain, Portugal, etc. is likely to happen anyway. Exit as you said into their own currency and deal with their own banks first. In fact I think the US and the Fed is likely to stay out of the EU collapse. Because the Fed is going to have enough problems dealing with US bank failures as a result of the contagion. Very interesting times we live in.

Since Germany is being accused of not being a team player, Germany should just issue a gold backed DM as a competing currency, allowing common German citizens to protect their savings from the coming storm of ECB printing salvation. DM for wealth preservation and the Euro for commerce. Play ball.

Your guess is as good as mine. I really feel though that Ireland is the key. Greece will default. We already know that and they advertize that in neon lights. Shit, Greece is already in default but they keep it alive for a reason. That reason is an understanding that once Greece is 'out', Ireland soon follows.

I love Ireland!

Germany won't return to the Dmark. The EURO is the new Dmark. The E.Z. will transition to a hybrid EURO/Sovereign trade block. The EURO will be retained and might actually become the replacement of the S.D.R.

It could become the model fiat and stand ready to replace U.S.D. when the time is right.

If this debt crisis followed the Titanic script, no one would announce to the depositors, "In 22 minutes, you're all good as dead." In the banking time frame, it's a little bit different. Could be 22 days, or weeks, but definitely not years. Plunging into the near freezing ocean of debt is going to shock the world.

For Germany, a bad combination would be: Strong DM and a weak global economy mired in depression. In fact, I think most here including TD (fraid to say) are over-estimating the resilience of Germany's economy without the benefit of booming exports (which, btw, are highly concentrated on the high-end). I was right about weaknesses in their banks.

There was a full system crash in Iceland, all the banks crashed, taking the whole economy with them, and to make matters worse Gordon Brown said in the media that they were trying to freeze all assets of Icelandic companies where ever they could, this resulted in all finacial transactions between Iceland and the outside world to stop.

When this happened it had a "end of the world" feeling to it, but it was not as bad as people would expect.

The government, who had put Iceland into this dilemma, was smart enough to guarantee domestic savings and keep ATM's open. Because of that there was very little panic and the Gov had time to put the dead banks into administration and create new ones who were retail only.

A full system crash does not have to be so bad, the things around us will not change, mountains lakes bridges roads houses will still be there and people will still have their skills and knowledge.

i personaly dont worry about it. What i worry about is what kind of system we get when the crash is over.

Not all societies will be as adaptive, orderly or tolerant as little homogeneous Iceland. Keep in mind there was a big bump in unemployment and the top level of government was forced to resign. Freezing foreign bank holdings for years is not a viable option everywhere.

As always the sun comes up. The question is more who gets hurt, how many, by how much and for how long? What gets lost and who benefits?

On an individual level it's an all-or-nothing deal. A system crash will push lots of people over the edge

You can bet it won't be as pretty here. People have felt entitled all their lives. When they actually have to go out and work to feed themselves it is going to be ugly. Look at how bad it gets when they announce applications for a government rent subsidy. When this system resets ,and it will, there will be chaos. I hope you're prepared.

Who the hell cares what GS says, they're all pushing for Europe to print then they switch to US and the game continues, otherwise they're all loosers. For some strange reason Americans believe that the're in better situation now, because of all that printing or smething else? Everybody wants to hang BB because of huge print output at the same they calling Europe idiots that they don't want to do it, so what it is you want?

not so different from H. Ford raising his workers wages so they could afford to buy the cars they were making. And could we have Bernanke's helicopters start dropping the money to the consumers a la 'circulation' of money vs decirculation of money locked up bailing out failed banks and now governments?

Geez, European TechnoBeaurocratic Infinite Omphaloskepsis is so painfully boring and situation aggravating there should be laws against it -- off with their heads!